If you’re a long-time investor, there’s something ominous about the stock-market pullback in early September.
Fall has historically been a volatile period for stocks, most notably in 2008 as the global financial crisis unfolded. Stocks began falling during the summer, but it was after Labour Day when the bottom dropped out.
Fall 2020 might be the most difficult-to-anticipate period in ages for investors, thanks to the combination of a spectacular summer run-up for stocks, notably tech stocks, and the risk of a second wave of COVID-19. The economy is still recovering from round one of the pandemic and a renewed lockdown would be a huge setback.
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Here are some ways to prepare a portfolio for uncertainty ahead:
Pad your cash cushion if you’re retired
Take profits from stocks that have soared and use the proceeds to expand the cash component of a retirement portfolio. This is especially relevant for seniors who wait until late in the year to make their mandatory annual withdrawal from a registered retirement income fund. You don’t want to be forced into selling equities that have lost value after a possible market correction. You have a reasonable level of cash if you can fund two to three years' worth of RRIF withdrawals from cash.
Pivot to a more conservative investing approach
One way to throttle back on the risk level in your investing is to start putting money into a more diversified and conservative portfolio. The quick and easy way to accomplish this is to select a balanced exchange-traded fund with an appropriate mix of stocks and bonds. There are conservative, balanced and growth versions of these ETFs, all with varying asset mixes and low fees.
Get cash into your investing account right now
We know from the events of April and May that plunging stock markets can turn on a dime. So forget about trying to time the next stock market bottom. Instead, load cash into your account now and use it to buy strategically on very bad days for the market. Cash balances in brokerage accounts pay nothing, but the same now applies to many bank savings accounts.
Build a to-buy list
When markets do fall, there will be a lot of chatter about paradigm changes and reckonings for the latest generation of market leaders. Avoid getting caught up in the speculation and uncertainty by building a Globeinvestor.com Watchlist of stocks you are ready and willing to buy when the price gets low enough, or the dividend yield gets high enough. Know what you want to buy before the sale begins.
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Rob Carrick